From a mathematical point of view, borrowing and saving are mirror images. In both cases many small payments allow for one or more large payouts. Only the sequence differs. Stuart Rutherford’s classic description involves “saving up” (saving) and “saving down” (borrowing), both for the purpose of assembling “usefully large sums.” When viewed in this way it is clear that saving and borrowing can serve much the same purpose, and at times can even substitute for each other.

This is true, as far as it goes, and it underscores the importance of disciplined payments of small amounts as a path to obtaining the lump sums needed for major purchases.

We recently traveled to India (Mumbai and rural Maharashtra) and Kenya (Nairobi and farming villages outside of Nyahururu) as part of a research project led by the Center for Financial Services Innovation and the Center for Financial Inclusion, and conducted by Dalberg. In speaking with a variety of residents, we were struck by vast differences in the way people make borrowing and savings decisions.

The people we talked with carried out most of their financial actions through informal instruments, though many were members of cooperatives and some did have (largely inactive) bank accounts. Instead of using these formal options, they borrowed mostly from friends, family and moneylenders. They saved in cash stashed at home, livestock, land and gold, amongst other assets. We asked how they decided where and how to save and borrow. They very willingly described their thought processes and the considerations that guide them in making decisions. As it turns out, their decisions about borrowing hang on surprisingly different criteria from those about saving, bearing on very different realms of their lives.

For these individuals, borrowing raises both practical and social considerations. The practical questions are rather straightforward. Who actually has the money and how much hassle will it be to get it? The social questions are much more fraught. They’re all about relationships. When people need to borrow, they evaluate their relationships to determine who to borrow from given the nature of the need. A loan connects the borrower in a new way with the lender. It both draws them closer and puts their relationship at risk. Loans may also create reciprocal obligations, monetary and/or social, though the latter may not be explicit.

With this in mind, we heard many people describe how they turn to different people for different purposes. Some said they would usually prefer to borrow from friends rather than family, and that they would rely on family as a last resort. If they failed to repay the loan, it would be easier to damage a relationship with friends, who come and go, than with family, with whom you remain permanently linked. One farmer in a village outside Nyahururu summarized it like this: “With family the problem stays, but with friends the friendship can end.” The desire to borrow in the context of a less personal relationship was also a stated reason for borrowing from moneylenders rather than friends and family, especially in rural Maharashtra. Given that moneylenders in this area tended to be large land owners, moneylender loans could be paid off through daily wage labor, which was something the villagers did anyway and which may have seemed easy to envision as a repayment strategy. Moneylenders were also named as the preferred source for larger loans, for practical reasons: They are more likely to have the money and provide it quickly. A goat herder explained it simply: “None of us have any money. We’re all in a similar situation; we don’t want to burden each other.”

The savings calculation is different. It’s more about economics. The key savings question is: How can I put my money to work while keeping it safe? Across locations we visited in Kenya and India, people weighed the pros and cons of saving in monetary form against other economic options, like buying livestock, land or gold, or paying for children to stay in school. While there are undoubtedly social considerations (livestock, land and gold convey status, for example), they are not the core of the decision.

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